If you visit a good Dhaba on Highway

Visualize this : You are cruising along in your car along the wide lanes of a highway, feeling slightly weary from the strain of travel. Suddenly a tantalizingly familiar smell hits your nose as you pass by. You hit the brakes and enter a ramshackle place with plastic chairs arranged around a few half broken tables, with a boy or two running around to do your bidding. Welcome to this place and  this is none other than the Dhaba.

The ‘Dhaba culture’ has enchanted everyone at some point or another. Be it the peace of resting your head on the ‘khatiya’ or the enthusiastic gulping down of ‘chaach’ and of course, beer and chicken and tandoori roti.  Vegetarian do not miss out on the pleasure of a Dhaba either; the paneer and dals fascinate everybody.

The Dhaba tradition began with the intention of helping out truck drivers rest, eat meals and refill their trucks. They served Punjabi food on wooden cots and catered to truck drivers constantly plying outside city limits. Soon this popular habit turned into a tourist attraction. Now, we have students taking road trips to go and eat at that one Dhaba that serves hot parathas on that chilly highway! The food still remains as tasty as ever and yet continues to be inexpensive. Enthralling isn’t it?

Dhabas price their food much cheaper than any other restaurants on the highways. Businesses of the dhabas spike up on weekends and those are the busy days. Business and work is low on all other days. Dhabas are now noticing recurring customers. Such a culture never existed before. Students and families have now become loyal customers and Dhaba owners pride over such visitors.

One of the show Highway on my plate depicts the food culture on highways

  

Source: http://goodtimes.ndtv.com

punesite.com

Indian Highway Image

Nearly $40 million to be poured into highway projects

HUNTSVILLE — Huntsville and parts of Walker County will see nearly $40 million in highway improvements over the next few years.

The Texas Department of Transportation has several projects in the works that will improve the safety of Huntsville roadways.

Highway 19 construction has been ongoing for months and is running smoothly, according to David Stephens, area engineer for Walker, Madison, Leon and Freestone counties.

“I’m tickled to death,” he said. “These are a lot of necessary projects.”

TxDOT partnered with the city of Huntsville on the Highway 19 project, with the city giving $150,000 for aesthetics and a signal on Highway 75 and Boettcher Drive. That project is expected to cost $15.3 million.

“Highway 19 is going well,” Stephens said. “The dry weather is causing a lot of people grief, but it’s really improving the production for Smith and Co., the contractor.”

Most of the on and off ramps have been roughed in along Highway 19, except for those entrances and exits that have traffic. Most of the beams have been placed for the Bearkat Boulevard bridge and the Highway 75 bridge.

“Bearkat is going to really be nice,” he said. “We worked with the city on it and tried to make some changes on it so it looks a lot nicer. It’s really kind of the main entrance to the college.”

There will be Texas stars integrated into the bridge columns for aesthetic purposes.

“We’re trying to make things prettier,” Stephens said. “There will be an exit ramp like there is now, but there will also be a frontage road that continues past Bearkat.”

Highway 30 underpass

The next major project residents will notice is a change to the Highway 30, FM 1791 intersection. There’s a red light for the FM 1791 portion and a blinking yellow light for Highway 30 travelers. Starting this month, contractors have bid on building an overpass that will be the new FM 1791.

Highway 30 travelers will no longer have to worry about someone pulling out in front of them from the farm-to-market road.

“We should start in the winter, then it’s about a 24-month project,” Stephens said. “It’s going to improve safety a great deal. What we’ll do is have frontage roads on either side that will be about where the existing lanes are. If you’re driving on Highway 30, you won’t have to cross any traffic. You will still have to stop on 1791.”

Stephens said this project was needed for safety reasons, and as such, was awarded through the TxDOT safety program.

“Projects compete statewide for a limited amount of safety money,” he said. “We did have a fatality where someone went through that stop light and hit another car. It’ll be a really big improvement.”

There will be a U-turn lane so anyone needing to go back into town will have that ability.

Interstate 45 Frontage

A contract is set to be awarded this month for frontage road construction along Interstate 45 in Huntsville. This project is expected to cost $8.7 million and will relocate entrance and exits ramps all along I-45 in the city.

Construction will stretch northbound from in front of Charlie’s Used Cars down to exit 118. There will be a new entrance ramp in front of El Chico Mexican Restaurant. The ramp at La Quinta Inn will be an exit ramp as opposed to an entrance ramp. There will be a new entrance ramp past Wiesner of Huntsville. The current exit 118 will be rebuilt further south.

“The whole goal is now that Huntsville has grown, we’re trying to keep as much traffic out of the signals as we can,” Stephens said. “We’ll have entrance ramps before signals and exits after the signals.”

On the southbound ramps, construction will start at FM 1791 and extend to Bob Luby’s Seafood. The frontage road will remain much the same, but will be reconstructed. The southbound exit 118 (south of the interchange of Highway 75), will be rebuilt further south.

“We’re basically going to modernize it so it’s more of a high speed entrance ramp,” Stephens said. “We  will not touch the ramp in front of the Holliday Unit.”

I-45/75/1791 Intersection

A $2.5 million project clustered around the intersection of Highway 75 North, I-45 and FM 1791 will have a major change on traffic backup in the area.

The process is expected to begin in August of 2012. Just after the Texas Department of Public Safety office, there will be a separate U-turn lane that will go between the bridge columns and the abutment on the south side of the existing road.

There will be a connector road for I-45 stretching from just in front of  Kate Barr Ross Park and cutting across Texas Department of Criminal Justice property.

“That’ll be a big improvement there,” Stephens said. “We’ll move the signal near the DPS office up to where 75 is now. We’ll do away with the (cross through street). If you’re wanting to go to the TDCJ BOT complex, you will be able to do that without going through a signal on the west side of the Interstate.”

Stephens said traffic studies were conducted of the area to determine the best way to alleviate traffic during mornings and afternoon rush hour.

“We’re really hopeful that it’ll be a great improvement,” he said. “One of the big things – if you’re going north and you want to go to the BOT, there will be a dual left turn movement. That should improve things a great deal there.”

City Projects

City Manager Bill Baine said the city is looking into ways to connect Spur 59 with FM 1791, creating a cross street that would help travelers heading to the TDCJ BOT complex.

“The idea would be to provide a safe way for local citizens to bypass the head-on truck traffic,” Baine said. “We want to facilitate people commuting to TDCJ headquarters.”

Source: http://itemonline.com

Rs 8kcr highway projects on anvil

NEW DELHI: The ministry of road transport and highways (MoRTH) has asked the National Highways Authority of India (NHAI) to award 3,000 km of roads on a cash contract basis during the current fiscal year to step up road construction.This would mean that projects worth Rs 7,500 crore-Rs 8,000 crore would be up for grabs for private road developers in the next few months. So far, NHAI has been awarding projects either through the BOT (toll) or BOT (annuity) mode, but this is the first time the authority has been asked to award large stretches under the cash contract scheme.While toll road projects have been mostly bagged by big players in the sector, cash contract projects may help small and medium-level players. “The focus of cash contract works will be more in the hinterland areas, which have remained untouched. These stretches have less traffic, and hence are not viable to collect toll,” said an NHAI official.The cost of construction is estimated to be in the range of Rs 2.5 crore and Rs 3 crore per km. The ministry is also considering whether these projects can be rolled out without acquiring additional land by using space available along the existing roads. Under this scheme, only extended two-lane roads would be built.Officials said this method would help expedite project execution. They said Uttar Pradesh, which is going for election early next year, is likely to get a bulk of such projects. Since the projects would be funded by the NHAI or the ministry, the Union government will have greater control over these projects that could help complete the work on time.In the first phase of this scheme, the highways ministry has started floating tenders for 540 km of highways in UP. Some officials in the ministry say the timeframe of one year for the maintenance of these roads by private contractors may lead to poor quality, and they want this to be extended to three to five years.

Source: http://articles.timesofindia.indiatimes.com

Toll Barriers on National Highways

There are 268 toll barriers on National Highways in the country and the revenue collection on these toll barriers during the last three years is Rs.2699.83 crore (2008-2009); Rs. 4151.31 crore (2009-2010) and Rs. 5516.05 crore (2010-2011) respectively.

Traffic flow across toll barriers is regulated by way of clear demarcation of lanes approaching the toll plaza, provision of traffic marshals, provision of tag lanes for rapid clearance of vehicles, reduction of processing time by toll collectors etc.

Complaints of general nature are received from time to time in various offices of NHAI across the country. As and when complaints are received, prompt action is taken to investigate the same and take corrective action, if required.

As per National Highways (Fees for the use of National Highways Section and Permanent Bridge – Public Funded Project) Rules 1997 applicable for Public Funded Projects “ Toll collection shall be done only at one place within a distance of 80 Kms. from a point at the beginning of first National Highways Section or approach of entry of the first permanent bridge to be crossed under the jurisdiction of the same executing agency, regardless of number of projects falling within the length in order to facilitate free and unhindered movement of traffic. Where it is not feasible to do so, the number of collection point shall be kept minimum and shall be decided with the approval of Central Government.

As per National Highways ( collection of fees by any person for the use of section of National Highways / Permanent Bridge/ Temporary Bridge on National Highways) Rules 1997, applicable for BOT projects, there is no such condition regarding distance between two fee plazas .

As per National Highways Fee (Determination of Rates and Collection) Rules 2008 any other toll plaza on the same section of National Highway and in the same direction shall not be established within a distance of sixty Kms.

Provided that where the executing authority deems necessary, it may, for reasons to be recorded in writing, establish or allow the concessionaire to establish another toll plaza within a distance of sixty Kms.

Provided further that a toll plaza may be established within a distance of sixty Kms. from another toll plaza if such toll plaza is for collection of fee for a permanent bridge, bypass or tunnel”.

This information was given by the Minister of State of Road Transport and Highways, Shri Jitin Prasada, in a written reply in Lok Sabha today.

Source: http://pib.nic.in

Indian government has finally realized the importance of road sector

Huge opportunities are unfolding in the Indian road sector. This means most Indian infrastructure and construction companies will benefit from the announcement of new orders or projects in the long run.

Also, a large number of these projects are on Build Operate and Transfer (BOT) and annuity basis, which means the companies will have a steady flow of cash through annuity or toll. This development spells good news for investors who can make full use of this golden chance and earn high returns in the long run.

WHY NOW?

The question that may cross your mind is why now? Ever since Kamal Nath took over as the Union minister for roads and transport, the Indian road segment has taken a new turn. He created various milestones since he was given this portfolio.

The most important announcement he made was the construction of the national highway at the rate of 20 km per day to expedite the achievement of National Highway Development Programme (NHDP) targets. This is significantly higher than the current execution rate of about 6 km per day. The ministry has also been working towards faster clearances related to procedures, land acquisitions and other formalities.

CREATION OF FUNDING

Kamal Nath is aware of the fact that improved road network in the country would not just lead to better connectivity but would also lead to increased energy efficiency in transport operations. He also travelled across different countries on road shows to international investors to highlight opportunities and potential in the Indian road sector.

Through these measures, the government has and will be able to rope in huge investments needed for the sector from international and national long-term investors.

Earlier it was difficult to raise money for more than five years or so as money was available only for a short period. However, now that the corporate debt market is developing, long-term investors like pension funds, mutual fund houses, insurance companies and even banks are coming forward to provide long-term capital. Most road projects, particularly the BOT ones need huge long-term investments in the form of debt and equity to fund them.

INCREASING VIABILITY

In terms of the less viable projects, the government increased the viability gap funding (VGF) or grant to 40% from 25%. Formerly, the grant used to be given after the completion of the project. But now it is handed over at the beginning of the project. In this manner the construction of the project does not get delayed for want of funds.

The government is also working on creating innovative ways of structuring non-viable projects like allotment of land, which can be monetized by developers so that the returns on investments are reasonable.

Other aspects like increasing the role of private players through public private partnership (PPP) and awarding of projects on BOT basis would mean that private players now have a bigger role to play in the construction of viable road projects.

A LONG WAY TO GO

India currently has about 33 lakh km of road network spread across the country. This is the third largest network in the world. But, in terms of density and quality of roads, India still lags behind many developed and developing countries of the world.

In relation to our population, the country’s roads are about 3 km per 1,000 persons, which is significantly lower than the world average of about 7 km per person. In terms of quality, about 80% of our roads are in a poor condition and require huge investments for repair, renovation and increase in the number of lines.

Majority of India’s roads are single line in spite of increasing traffic and congestion. Even the conditions of our existing roads are so bad that India’s logistical cost as a percentage of total production cost is considered to be about twice the world average of 7%.

No wonder due to the poor road infrastructure, India is ranked 87th in the world on the basis of quality of roads, which is very low and considered to be the biggest hindrance for economic growth as envisaged by the government for the coming years.

Surprisingly, within this vast network of roads, only about 2% is accounted for by national highways and a very minuscule part is accounted for by express highways, which is very critical considering that about 40% of the total road traffic is handled by national highways.

The slow transportation of goods has also affected the movement of goods among states, delaying exports and imports of the country. Especially, in the case of transportation of perishable goods like milk, vegetables and flowers among other things, which are procured from the hinterland takes so much time that they become stale or get destroyed before they can actually reach the end consumer and the export market.

This leads to wastage of goods due to the delay in reaching the markets. Express road connectivity to the main ports of the country and to major cities is very important to improve trade volumes and discover better prices for farm goods.

WHAT IS CHANGING?

The government has realized the importance of better roads in the country so that it can support the growth of the economy in the coming years. Roads are critical for any economy, especially a growing economy like India with a large population and different topographies.

The role of roads is of paramount importance for commercial and economic activities in the country. In India, passenger traffic is growing at about 12% per annum, while cargo traffic is growing over 15%, which will continue to rise as economic activities improve along with the increase in foreign trade.

India’s foreign trade is growing at 10-12 % and there is an immediate need to connect all the major ports of the country. The government has taken the first step in this direction. Under the NHDP (phase II), the government will connect major ports and build freight corridors, which will connect many states from the eastern part of India to western India.

In phase III of the NHDP, all major capitals will be connected with highways. Also major cities and points that could not be connected in phase II will be connected with better road infrastructure. Besides, plans are afoot to improve and connect rural India to major cities of the country soon.

EASING HURDLES

Most of these plans are not just on paper. In fact the government has already awarded projects to achieve this goal. The government formed the BK Chaturvedi Committee, which presented its findings and suggestions to make progress in the sector.

Based on the findings of the committee report, several changes have been incorporated and more importantly, the government is seriously working on the recommendations, which are quite innovative and provide solutions to various problems that the companies have been facing.

Changes have been incorporated with regard to land acquisition, which is the biggest problem for construction of roads in the country.

Now, NHAI will work along with the state governments for facilitating land acquisition and all state governments have been directed to coordinate for the same. NHAI now awards road projects only after 80% of the land has been acquired.

FEW SPEED BREAKERS

Tackling delays in approvals, decision-making, faster resolution of disputes and coordination among different departments are few other highlights of the recommendations of the committee report.

Essentially, most of the changes are already in effect and new orders are awarded to interested parties. The flow of new road orders in the last few months was the highest in the last several years. This itself speaks volumes about the commitment of the government and its intention to put things on ground.

Also, the projects which were not viable and did not attract private participation were given extra focus and restructured within time frame along with consultations of private players while changing the terms and conditions of the project. There are other measures also which have attracted private participation in road projects.

Large projects will be built on a BOT basis, which are expected to have a higher return of about 18% to 20% on investments as compared to 14% to 16% earlier. Additionally, the new guidelines that have been framed are such that once a project is awarded for a particular road, the private player is given an assurance that there will not be any competition or construction of road, which will make sure that the cash flow in terms of the collection of the toll is protected.

What is more remarkable is that the government now has experts as representatives from development agencies like the World Bank, the Asian Development Bank, who make sure that the projects are not delayed and hurdles are resolved.

These representatives keep track of projects and act as a liaison between government agencies and private parties. They also bring their experience to structure the project in such a manner that it gets executed.

QUANTUM OF OPPORTUNITY

There are different estimates about the size of the opportunity. But there is little or no doubt that the opportunity is far bigger than what it used to be a few years ago.

When we talk about 20 km per day of the construction of roads, this in itself is self-explanatory. This means that the country will have to build about 7,300 km of roads every year. This is significant as the current run rate is just about 2,500-3,000 km of roads built every year.

One could also imagine the kind of work that will now flow. For the eleventh five year plan which will end in 2012-13, about Rs 3.14 trillion will be invested as compared to Rs 1.45 trillion invested in the tenth five year plan. This is still the tip of the iceberg. India’s investment in the roads segment is expected to be in the range of Rs 10.5-11 trillion over the next decade.

In the near term, about 5,000 km of new expressways will be built and the projects will be awarded for the same. Also, NHAI has plans to award work for about 37,000 km of roads over the next three years.

Besides, under the NHDP’s different phases, the government will award work relating to the upgradation of about 55,000 km of roads over the next 8-10 years.

WHO WILL BENEFIT?

Most construction and infrastructure companies are focusing on this particular segment and their exposure has gone up in the recent past. IRB Infrastructure and IL&FS Transport Network (ITNL) are popular in the roads segment having the highest exposure to the road segment. In the case of IL&FS, the company has recently come out with an IPO and was listed recently.

ITNL is amongst the largest private sector BOT road operators in the country having integrated business model providing service for projects, from conceptualization, construction to operating and maintenance of the road projects. The company has already bagged about 19 road projects.

Apart from roads, the company is also looking for opportunities in airport segments and plans to bid for more projects in this segment. The company’s advantage is its large portfolio of BOT assets and a long experience in the sector. The company has presence across different parts of the country and has about 9,397 lane km of road projects under its belt.

IRB Infra too is a leading player in the roads segment generating almost 100% of its revenue from this segment. The well-known Mumbai-Pune highway, one of its kind in India, is operated by IRB Infra.

The company has an integrated business model having large experience in toll roads and highways sector. The company has about 1,100 km of road projects in its kitty, which is the second largest among private players in the whole of India.

As opportunities are growing, the company should be able to procure more projects and increase its current portfolio. The company will not only benefit on account of the construction of these projects but also due to the collection of toll and annuity from these projects, providing stable future cash flow.

Also most of its projects are strategically located in major traffic areas like Mumbai-Pune, Mumbai-Surat, etc. The company also won projects in other states like Rajasthan and Punjab and is gradually focusing on becoming a pan-India player in the road segment.

Source: stockmarketsreview.com

Infrastructure sector set to receive

More bank credit will soon flow to build infrastructure in the country with the Reserve Bank of India (RBI) on Tuesday reducing the level of provision against substandard loans to the sector from 20 per cent to 15 per cent.

The central bank’s decision to treat annuities and toll collection rights under build-operate-transfer (BOT) road and highway projects as tangible securities has also come as a major relief to infrastructure companies.

Banks and institutional lenders said the move on provisioning would enable lenders to loosen their purse strings for the infrastructure sector where long gestation projects often end up with issues that are beyond the control of both the lender and the borrower.

“There are many uncertainties in the infrastructure sector. Often there are delays due to reasons such as obtaining environment clearances and delay in equipment supplies that lead to assets becoming substandard. The RBI move will definitely encourage banks to go ahead and provide more advances to the infrastructure sector since it will provide a comfort factor,” SS Kohli, chairman and managing director of India Infrastructure Finance Company (IIFCL), the government’s flagship infrastructure finance company, told Financial Chronicle.

SBI chairman O P Bhatt said the announcement on infrastructure lending would help banks to finance such projects. “The treatment of annuities as tangible securities under BOT scheme will help attract private equity and give a boost to infrastructure sector,” he added.

UCO Bank chairman and managing director SK Goel echoed the view. “RBI move will reduce the burden of banks since loans to infrastructure projects often become substandard due to technical reasons. With only 15 per cent provisioning requirement, banks will be encouraged to lend more,” he said.

CMD of Bank of Maharashtra (BoM), Allen C A Pereira, said banks have been raising concerns over project delays and asset-liability mismatches in their infrastructure portfolio.

“Infrastructure projects are long gestation projects and several times things do not work out the way it was originally planned. Therefore, there was a strong case for easier provisioning norms for substandard assets. The RBI move is to ensure that banks do not suffer,” Tourism Finance Corporation of India CMD Archana Capoor said.

According to the planning commission, projected investment in infrastructure such as ports, airports, railways, power, irrigation, water supply and sanitation during the 11th plan (2007-11) is Rs 20,54,205 crore. The huge demand for funds can be gauged from the fact that the road ministry alone plans to award projects to build around 18,000 km during this financial year worth more than Rs 1,50,000 crore. Of this, 65 per cent of projects would be on BoT toll basis, 20 per cent on annuity and remaining 15 per cent on engineering, procurement and construction (EPC) model.

However, bankers said the RBI move was not to make banks meet their overall credit growth target when of offtake to sectors such as real estate has slumped. “These issues are not linked. The slowdown in overall lending and to the housing sector may be due to other reasons. Housing loan borrowers may be adopting a wait-and-watch approach,” Pereira of BoM said.

UCO Bank’s Goel agreed: “This is purely to encourage flow of funds to infrastructure sector. Overall credit growth and trends for specific sectors cannot be linked.”

Meanwhile, infrastructure companies have welcomed the decision to treat annuities and toll collection rights under BOT projects as tangible securities, saying the decision would give private road developers easier access to funds at lower interest rates.

At present, in BOT road projects, there is nothing that can be considered as tangible asset. This is because the concessionaire has to transfer the land either to the National Highways Authority of India (NHAI) or the state government after about 30 years of the agreement. Toll collection is also uncertain and therefore treated as an intangible asset. This makes it difficult for developers to obtain loans under the secured category.

“Now that the RBI has allowed annuity and toll collection rights as tangible securities, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, it will make banks pro-active to lend to the sector,” Issac A George, chief financial officer of GVK Power and Infrastructure, said.

In its credit policy, RBI said annuity and toll collection rights should be treated as tangible securities subject to the condition that banks’ right to receive them is legally enforceable and irrevocable.

“Most banks offer loans to road developers under secured categories. However, there are lots of provisions and agreements that the parties work out among themselves. The developers also pay a higher interest rate of up to one and a half per cent for unsecured loans. The RBI announcement will help developers to save the additional interest cost and avoid legal troubles,” said Vishwas Udgirkar, an executive director at PricewaterhouseCoopers.

The move is also expected to lower the cost of road projects. “The RBI move to treat annuities and toll collection rights as tangible securities will create a healthy market for securitisation of toll portfolio, thereby reducing the cost of road projects after construction,” said Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance.

Source: mydigitalfc.com

17 states pledge cooperation for highways projects

New Delhi, April 13 (IANS) Seventeen states and the union territory of Chandigarh Tuesday assured support to the centre for timely execution of highways projects in the build, operate and transfer (BOT) mode.

The governments of Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Haryana, Himachal Pradesh, Jharkhand, Maharashtra, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Punjab, Rajasthan, Tripura, Uttarakhand, West Bengal and the union territory of Chandigarh signed the State Support Agreement (SSA) with the ministry of road transport and highways.

The agreement was countersigned by the National Highways Authority of India (NHAI).

For the development of highways, support of the state governments is essential in the matter of land acquisition, removal of encroachments, shifting of utilities, rehabilitation and other local law and order related issues.

“The SSA aims at formalising the cooperation arrangement with the state governments to the implementation of the extensive programme of development of national highways on public-private-partnership (PPP) through the NHAI,” an official statement said.

Five states — Karnataka, Kerala, Goa, Puducherry and Sikkim — will also sign the SSA soon, it said.

However, Uttar Pradesh has indicated its desire to withdraw from the SSA it signed earlier.

“Discussions are going on with the government of Uttar Pradesh to resolve the matter,” the statement added.

Source: sindhtoday.net

IVRCL Infra bullish on BOT road projects

IVRCL Infrastructure and Projects Ltd said it has received a Rs 1,550 crore BOT (Built Operate Transfer) road project in Madhya Pradesh from the National Highways Authority of India (NHAI). The concession will be for 25 years and the project will be completed in 30 months.

“The 155-km long road project will be executed by a special purpose vehicle owned by IVR Prime. The road construction will be taken up by IVRCL Infra,” said Mr E. Sudhir Reddy, the chairman of IVRCL Group.

“With this, IVR Prime has BOT projects — confirmed and lowest bidder — worth Rs 10,000 crore,” he said adding that the company expects to win six BOT projects by this year end.

The project, which is a part of National Highway 59, involves design, engineering, construction, development, finance, operation and maintenance of the road that runs between Indore and Ahmedabad.

Mr Reddy said that the debt-equity of 5:1 would be used to fund the project. “The equity component will be raised through internal accruals and raising debt will not be difficult for us,” Mr Reddy said.

Following the road transport and highways minister, Mr Kamal Nath’s target to build 20 km road every day by April 2010, the NHAI has put the process of awarding contracts on the fast track. “We are currently doing 9 km a day and would be in a position to scale up to 20 km a day by April-May 2010,” Mr Nath had said recently.

Recently, the government had approved road projects worth Rs 6,152 crore in five states for upgrading nearly 562 km of four-lane highways into six lanes.

Mr Nath had also coined the idea of issuing infrastructure bonds to raise money from non-resident Indians on the lines of the Resurgent India Bonds issued in 1998 and the India Millennium Bonds issued in 2000.

Backward-bending policy to take toll

The B K Chaturvedi committee has suggested ways for expeditious financing and implementation of the National Highways Development Project (NHDP). It has rectified problematic rules concerning the exit policy, bid security, security to lenders, request for qualifications (RfQ) and request for proposal (RfP). These belated measures will surely make highway projects more attractive for investors.

However, some other recommendations bear unmistakable signs of fear psychosis, perhaps caused by the reduced private investment in highways during 2008-09. The decline was largely due to two reasons: the detrimental and mid-course changes made in RfQ and RfP rules, and the economic downturn. But in a typical panic-driven response, the committee has confused symptoms with the causes. Thus, it has introduced some questionable changes in the model concession agreement (MCA) for tolled projects. Conversely, several crucial issues have been ignored.

To put arguments in perspective, recall the pre-August 2008 scenario: 9%-plus growth rate, upbeat credit and financial markets, and bullish investors scrambling for projects to invest in. During 2006-07, more than 60 highway projects attracted private investment. In fact, there was a shortage of well-structured projects on offer.

The extant rules regarding the viability gap funding (VGF) and termination of contract posed no threat to the attractiveness of highway projects. Yet, the committee has targeted these rules to implement investors’ wishlist. Under a BOT-toll contract, an investor is granted the right to charge toll from users.

There are two main justifications for this concession: investors provide upfront funding for projects, alleviating the taxpayers’ burden, and bear the construction, maintenance and commercial risks. VGF grant is provided to make a socially-desirable but unprofitable project attractive for an investor. The underlying objective is not, and should not be, to add to the upfront financing — that is for the private sector to do. Limited funds are available for VGF. The MCA rules allow VGF up to 40% of the project cost; 20% during construction phase and the rest during maintenance phase.

In contrast, the committee has offered the entire grant during construction phase itself, and has reduced
it to a mere cost-sharing device. Further, compared to what would have been possible under the earlier rules, now the grant requirement of fewer projects will be met with. So, at least in the short run, fewer grant-dependent projects will take off.

Besides, an investor can borrow 20% of project cost at concessional rates from the IIFCL, a public sector company. Indeed, excluding the profit margins, an investor can meet up to 70% of cost just using grants and other funds raised by public sector entities. Simply put, what was to be the investor’s responsibility has been passed on to the taxpayer, undermining the rationale of VGF as well as toll contracts. Moreover, an investor is reimbursed 90% of due debt if the contract gets terminated. So, the new rules are likely to create moral hazards during construction phase and later.

Under MCA rules, if actual traffic turns out to be less (greater) than predictions, the concession period is increased (reduced) proportionately. If traffic increases beyond the designed capacity, to avoid congestion, the concessionaire is required to widen the road at his cost. These rules imply that road users get satisfactory service, and the investor and the taxpayer share the unanticipated losses (gains) arising from traffic-risk. In contrast, under the new rules, if the government asks for capacity expansion on account of high traffic, it will have to compensate the investor. Moreover, the contract period cannot be reduced. So, the event of traffic exceeding the designed capacity has become lucrative for the investor. It would ensure them unexpectedly high profit.

Source: economictimes

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• Project of six laning of Vijaywada –Gundugolanu section of NH 5 in Andhra Pradesh
• Japan keen on Bangalore-Chennai highway project
• Vinayak Chatterjee: The high road to efficiency